The Bond Fund is not the ProblemFrom time to time, I hear from clients who are concerned about holding a bond fund. They have heard stories about a bond fund that imploded. First, let me tell you that’s very rare. It happens, but not often. More importantly, it’s not the nature of a bond fund that’s the problem. It’s the type of bonds those funds are holding that’s the problem.
A bond fund is really just a wrapper. Think of it like this. I happen to like jelly beans. I can get them in all sort of different containers. I can go to the grocery store and buy jelly beans in bulk (you know, putting them in a plastic bag and weighing it). I can buy them in 3 oz packages. I can buy them in 8 oz packages. You get the point.
Now I can take a bulk jelly bean bag and reuse it to store wet rags. That’s no longer an attractive bag, but it’s not the bag’s fault. It’s what I put in the bag that ruined it.
If you have a bond fund with high quality bonds in it, you shouldn’t have to worry about your bond fund imploding. Of course, that means you need to know what’s in your bond fund. I can help with that, if you’d like.